Additional Considerations Required While Assessing Moura Dubeux Engenharia's (BVMF:MDNE3) Strong Earnings

Despite posting some strong earnings, the market for Moura Dubeux Engenharia S.A.'s (BVMF:MDNE3) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

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A Closer Look At Moura Dubeux Engenharia's Earnings

As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

That means a negative accrual ratio is a good thing, because it shows that the company is bringing in more free cash flow than its profit would suggest. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

For the year to June 2025, Moura Dubeux Engenharia had an accrual ratio of 0.20. Unfortunately, that means its free cash flow fell significantly short of its reported profits. Even though it reported a profit of R$325.0m, a look at free cash flow indicates it actually burnt through R$35m in the last year. We also note that Moura Dubeux Engenharia's free cash flow was actually negative last year as well, so we could understand if shareholders were bothered by its outflow of R$35m.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Moura Dubeux Engenharia's Profit Performance

Moura Dubeux Engenharia didn't convert much of its profit to free cash flow in the last year, which some investors may consider rather suboptimal. Therefore, it seems possible to us that Moura Dubeux Engenharia's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For instance, we've identified 2 warning signs for Moura Dubeux Engenharia (1 is a bit unpleasant) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Moura Dubeux Engenharia's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.